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ETFs: The Truth About Transports

Of course, there's also the savings advantage of often bypassing the sales tax on big ticket items like TVs. Now, a post-crash weary consumer is purchasing basic household items like bed linens and small home furnishings to avoid the expense of $4.00+/gal gasoline to go to Target or Walmart. A smarter consumer can now go "shopping" at their computer screen and compare prices, read reviews and and have their purchases delivered to their doorstep as quickly as the next day. FedEx and UPS are the backbone of "New Retail".

Even with the cream-of-the-crop transports in the top three holdings comprising almost 30% of this index, IYF has had a sharp decline over the past month.

From the October lows, IYT has generally kept pace with the Dow Jones Industrial Average. As the Dow has drifted higher, IYT has created a disconcerting negative divergence. From a technical standpoint, IYT has developed an ascending wedge, considered to be a bearish pattern. Breaking the lower trend line with high volume selling confirmed a breakdown in the transports.

Currently, the 50 day moving average appears to be holding as support. The Money Flow Index and Stochastics look to have bottomed and turned. However, this is not confirmed by the slower Relative Strength Index and MACD. The +/- Directional Index shows the bears are clearly in control. Should the 50 day moving average support fail, the 200 day moving average doesn't show much of a support level and we could see price dropping to the longer term price support at $85.00.

A buy at $85.00 on IYT could be profitable if we see real economic recovery. But more than a buy/sell recommendation, IYT can give us some insight into the general health of the economy and the overall market, especially the Dow Jones Industrial Average. Watch IYT for the truth of economic recovery.

Disclosure: At the time I writing, I have no position in IYT.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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